South Korea is among the few nations witnessing a productivity increase attributed to artificial intelligence (AI), though escalating tensions between the U.S. and China regarding semiconductor technology could pose challenges to its economic growth, analysts from Bank of America have noted.
The semiconductor sector constitutes 17% of South Korea’s exports, and the country has emerged as a major beneficiary of the current AI surge. Exports have reportedly risen by over 50% year-on-year, according to a report from Bank of America Global Research. Analysts believe that South Korea’s significant investments in AI research and development, coupled with a rising number of AI-related patents, will further enhance its AI adoption in the future.
However, the analysts caution that potential geopolitical conflicts could impact the semiconductor supply chain, specifically referencing the strained relations between the U.S. and China. Although South Korea has made efforts to diversify its chip exports beyond China, over 30% of its chip exports still went to China and Hong Kong in 2023, with a similar amount directed to the U.S.
Bank of America analysts warned that if U.S.-China tensions heighten and the U.S. imposes further restrictions on the export of advanced or AI-related chips to China, it could severely disrupt South Korea’s memory semiconductor exports.
Additionally, South Korean chip manufacturers rely on China for critical components and equipment needed for chip production. Disruptions in this supply chain would complicate the ability of South Korean companies to obtain the necessary tools for semiconductor manufacturing.
The U.S. has reportedly requested South Korea limit exports to China of equipment and technology used for producing memory chips and advanced logic chips, specifically targeting logic chips exceeding 14-nanometer and DRAM memory chips beyond 18-nanometer. South Korean officials are considering this request due to the potential impact on major corporations like Samsung and SK Hynix, who have operations in China, South Korea’s biggest trading partner.
In the meantime, the Biden administration is reportedly contemplating the implementation of an export control measure known as the foreign direct product rule against allies that continue to export chipmaking tools and equipment to China. This rule would prevent the export of any goods to any country if they contain a specified amount of U.S. intellectual property components.